CIBC chief executive says credit card losses could subside into next year

TORONTO - Canada's credit card industry could see its losses start to subside in the coming months and growth return next year if the economy improves as expected, the CEO of Canadian Imperial Bank of Commerce (TSX:CM) said Tuesday.

"If Canadian unemployment peaks shortly, and starts to decline - and at the same time the economy performs reasonably - the probability these portfolios will continue to grow and (we) will see a dropoff in loss rates is significant," CIBC chief executive Gerry McCaughey told a webcast investor conference in Montreal.

"The impact on the industry from a viewpoint of increased profitability due to lower loan losses would be significant."

At first glimpse, the comments from McCaughey make an obvious statement - if people are making money, they're likely to pay the outstanding bills on their charge cards. It's also a rare vote of confidence for the country's stressed credit card industry by a major banking executive.

CIBC is considered the largest credit card player in the country, which means it has the most exposure to loan losses in the area. As the economy faltered, more consumers and companies started to miss payments due on their credit cards, which wore away at the bank's credit division.

The bank responded by pulling back on many parts of its business that it considered high-risk, including credit cards, to avoid further pitfalls.

In its fiscal third quarter, CIBC dedicated $207 million to loan losses on its credit cards, a major reason that the bank's overall provisions for credit losses soared to $547 million from $203 million in the same period last year.

"If CIBC is telling us that they're feeling better about it, that means a lot to me," Mario Mendonca, a banking analyst at Genuity Capital Markets, said Tuesday.

"It means that CIBC will probably post a better retail (consumer banking results in the fourth quarter) than maybe most of us were expecting."

Earlier this month, CIBC World Markets economists predicted that the country's economy would slowly recover at a rate of two per cent next year, and 3.8 per cent in 2011, a level similar to growth generated before the recession.

The prediction falls in line with McCaughey's optimistic scenario, though Blackmont Capital banking analyst Brad Smith cautioned that it's too early to confirm that the assumptions of a recovery will prove true.

"It's a very big question, and I don't think there's any debate that our resilience has been fairly well documented," Smith said.

"Provided that the worst is behind us and there are encouraging times ahead, I would agree that credit losses in general are not likely to get a lot worst. On the flip side, if employment conditions do not improve, they will get worse."

McCaughey said that next year businesses will be seeking capital in both lending and securitization as they rebuild strength.

"The Canadian economy is going to require this type of lending facility in increasing amounts... because there has been an exit of foreign lenders," he told the conference.

"I think the Canadian banks will be filling that."

CIBC's overall operations have posted more than $10 billion in writedowns over the past two years.

The bank's shares were up $1.01 to $66.87 in afternoon trading on the Toronto Stock Exchange.